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How strong is the FTC's Intel case?

If the FTC takes legal action against Intel, the agency will be moving into uncharted and risky territory, experts say.

If the Federal Trade Commission takes legal action against Intel for cutting off technical information to its partners, the agency will be moving into uncharted and legally risky territory, legal experts say.

Although the government has amassed plenty of ammunition in its nine-month Top FTC litigator: Sue Intel investigation of the chip giant, its specific dealings with partners Intergraph and Digital Equipment--believed to form the core of the government's case--do not readily support violations of antitrust law, the experts argued.

"I'm a skeptic that there's a good antitrust framework for this lawsuit," said Rich Gray, an antitrust attorney with Bergeson, Eliopoulos, Grady, & Gray. Gray's firm represents Intel in a suit unrelated to the Intergraph case.

While the FTC may frown on Intel's using its technical information to dissuade customers such as Intergraph and Digital from asserting intellectual property rights, "it is hard to argue that that behavior has a competitive impact that somehow violates the Sherman Act," he added.

Intel has come under fire for threatening to withhold key technical information from these two partners, which challenged the chipmaker's business interests in separate and unrelated patent-infringement lawsuits. (Intel is an investor in CNET: The Computer Network).

Opponents contend the moves violated antitrust laws, given Intel's dominance in the markets for personal computer and server microprocessors. Although Digital and Intel settled their dispute out of court, Intergraph's court battle is ongoing.

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In April the federal judge hearing Intergraph's case supported critics' antitrust charges. "Intel's refusal to supply [equipment] and essential technical information to Intergraph likely violates section 2 of the Sherman Act, because they are not available from alternative sources and cannot be feasibly duplicated, and because competitors cannot effectively compete in the relevant markets without access to them," U.S. District Judge Edwin Nelson wrote.

Despite Nelson's decision, some legal experts are not convinced that Intel's behavior constitutes anticompetitive behavior under federal law.

William Kovacic, a professor specializing in antitrust law at George Mason University, agreed with Bergeson, Eliopoulos's Gray, arguing that Intel does not compete with Intergraph in marketing products that use microprocessors.

"The commission is going to have to show that the refusal to deal [with Intergraph] injured competition in the sale of workstations or other end products," explained Kovacic. "That may be difficult in an industry where you have a number of participants."

Kovacic added that Intergraph is a customer of Intel's, not a competitor, a factor that will complicate the case for the government. "The conditions under which [Intel] can be compelled to deal with customers are very narrow, and I don't think the commission is going to satisfy them here."

But Howard Morse, a former assistant director at the FTC's competition bureau, disagreed, saying all the necessary elements exist for the FTC to prevail in an antitrust case.

"The facts in the Intergraph decision suggest that Intel has used its monopoly power to force others to give up their intellectual property rights," said Morse, now in private practice at Drinker, Biddle, & Reath in Washington, D.C. "One can articulate a sound theory of why [Intel's behavior] could create competitive harm," including one that argues Intel's action creates a disincentive for companies to innovate.

Kovacic said that if the FTC goes forward with its case, it will likely rely heavily on the landmark Supreme Court case Aspen Skiing vs. Aspen Highlands Skiing. By a 9-0 margin, the court held that the one ski resort's termination of a partnership agreement with the other violated the Sherman Act. The reasoning: Termination of the pact was designed to destroy its competitor and would result in fewer choices for consumers.

"The commission is going to say that Aspen figures prominently in the case," said Kovacic, explaining that both involve a dominant firm withdrawing from a commercial relationship that harms a partner.

Now that William J. Baer, the FTC's director of the bureau of competition, has recommended that the agency take legal action, it is up to the five commissioners to approve the recommendation. Before that happens, however, Intel is likely to meet with each of the commissioners to argue why the case is without merit.

Intel probably will make certain concessions to the commissioners in order to head off a suit, according to Gray. The most likely bone Intel would throw commissioners, he predicted, is a promise not to terminate existing relationships with companies if they assert intellectual property rights against the chipmaker.

Others, however, said Intel would be unlikely to make such an offer and the FTC would be hesitant to accept it in return for not filing an action.

If the FTC decides to take legal action, it is likely to file a so-called administrative action, where the case is heard by a special judge who works for the FTC. Allowing for a trial and other procedural requirements, it could take anywhere from one to three years for the judge to issue a decision. Then either party could appeal it to the five commissioners. If Intel chose, it could then challenge the commission's ruling in any one of the 13 federal courts of appeal.